RIM is in trouble: who will buy the BlackBerry pie?

With its market share sliding, BlackBerry maker Research In Motion is in deep …

BlackBerry maker Research In Motion is in deep, deep trouble. Shareholders are watching co-CEOs Balisillie and Lazaridis squander a once-bulletproof lead in the smartphone wars, and they want some changes. The company is currently looking at a new management structure, but that might be too little, too late.

More drastic measures seem to be in order. Would anybody want to buy the company? And if so, what would the buyer get? Let's find out.

The time is right

Should RIM be looking for buyers at all? After all, the company is still growing both sales and profits at a more than respectable pace. In fiscal year 2011, which ended in February, revenue was up by 33 percent year-over-year and earnings jumped 47 percent. Many CEOs would sell their mothers for numbers like that.

But in the handset wars, market share is everything. On that front, RIM isn't doing so hot. Smartphone buyers are overwhelmingly looking for iPhones and Androids. If the customers aren't lining up for new BlackBerrys, then the networks care increasingly less about supporting and marketing the platform, and the death spiral has begun. Those juicy growth numbers will surely turn negative in the near future unless RIM takes action.

What's in the bag?

If RIM strikes a deal before the financials turn pear-shaped, the company can point to miraculous growth statistics while beating its hairy chest like a Canadian lumberjack and promising more of the same. RIM also has $2.4 billion of debt-free cash on hand plus about $2.5 billion of net value in its manufacturing facilities. All things considered, the company would be worth something like $10 billion plus buyout premium in a cash deal today. (Confused by net cash and facilities bringing down the total value of the company? Think of it as paying $100 for a wallet with a $20 bill inside. You really only paid $80 for that billfold.)

Moving quickly would be a good idea. The further RIM's smartphone share slips, the smaller the buyout premium becomes. In recent telecom history, Google offered a 63 percent near-term premium for Motorola Mobility, and Level 3 Communications sweetened its Global Crossing deal by 55 percent. If the Canadians play their cards right, they might get a deal of that magnitude and everybody goes home happy.

A patented strategy

RIM's super-sized patent portfolio would be one key reson for that optimistic valuation. In the current Mexican standoff climate where anybody who is anybody is suing everybody else, wireless technology patents are worth their weight in plutonium. RIM itself took part in the bidding for bankrupt Nortel's patent treasures, and ended up on the winning side in an unlikely coalition with Microsoft, Apple, Sony Ericsson, and mobile oddball (but storage giant) EMC. So this company knows how the game is played.

According to Evercore Partners analyst Alkesh Shah, RIM is sitting on more than 10,000 advanced wireless technology patents, surely enough for any conceivable type of offensive or defensive action. But if RIM sits on its hands until the patent battles cool off, or until the major players have stocked up on ammunition elsewhere, the moment is lost.

But wait, there's more!

RIM is more than just a bag of patents, of course. There's a ton of history and there's still value in the CrackBerry brand name. A global network of phone factories is a unique advantage as Apple and others tend to rely on third-party manufacturers like Foxconn or Flextronics. Then there's the $200 million purchase of the QNX microkernel OS, which didn't work wonders for the PlayBook but might make a difference under new management. Is it still worth $200 million? Hard to say, but it's another asset to consider.

BlackBerry's longtime status as a premium provider of secure communications is another selling point. The BlackBerry Enterprise Server middleware remains a leading management system for mobile access to Microsoft Exchange and IBM's Lotus Notes or Domino systems. That function alone will keep the BlackBerry brand alive for years after the last puff of innovation leaves Waterloo, Ontario. The client software has been ported to Symbian, the old-school Palm platform, and to Windows Mobile 6; getting it done on iOS, Android, and/or Windows Phone 7 would keep the servers alive.

The usual suspects

So who would want to pay something like $16 billion, net of RIM cash and assets, for this intriguing but mismanaged mix of patents, hardware, history, and still-relevant software?

One common suggestion is Microsoft. Redmond has cash in spades and desperately wants to make a mark on the mobile industry. Moreover, the synergy between Exchange and BES practically begs for a buyout. It just makes sense.

But if Microsoft is buying anybody in the phone industry today, I'd expect it to be Nokia. CEO Stephen Elop is a former Microsoft VP who already made huge strategy changes in the direction of Redmond. This cute couple might as well get married already, and then Microsoft would have little reason to go polygamist on its committed partner.

Likewise, Google just got its missing patent shield courtesy of Motorola Mobility and I don't see the company investing in a second mobile platform. And let's not even drag Cupertino into the discussion—as rich as Apple is, these companies would go together like lamb chops and chocolate chips.

Hewlett-Packard has its cash committed elsewhere already. The day that IBM gets into semi-consumer sales by buying something like RIM is the day flying pigs darken the skies over Cincinnatti. So who else is big and rich enough to make the play, but not already too far down a different road to make the move?

The real contender

Come on down, Oracle! Here's why:

Larry Ellison loves growth by acquisition and hasn't made a big, splashy deal since the Sun buyout some 19 months ago. His trigger finger must be itching for action by now.

Already embroiled in legal battles with Google over Android, RIM's patents would give him fresh projectiles to hurl in the general direction of Mountain View.

Oracle and enterprise-friendly businesses go together like peanut butter and Nutella. Under Oracle, RIM would forget about the consumer market and refocus on pure business-class products, where the brand still has a fighting chance.

Larry loves picking up distressed companies on the cheap. See Sun again for a recent example, and remember that RIM today is worth one-fifth of the value at its 2008 peak.

Finally, Oracle is no stranger to entering entirely new markets through buyouts. The company didn't sell servers before the Sun deal, and never cared for financial management software before buying Siebel, PeopleSoft, and JD Edwards. Grabbing RIM would be par for the course.

So there you have it: Oracle is RIM's ideal partner. All that being said, the company could still wither on the vine, all alone. Selling out to anyone else would require Balsillie and Lazaridis to bend their giant egos quite a bit, and I don't even expect them to abandon that awkward co-CEO arrangement. No matter how perfect the proposed deal, RIM won't find a buyer until shareholders rise up to replace these guys. By then, the patent-value boost will be long gone and everybody will go home angry.

"the company is still growing both sales and profits at a more than respectable pace.""RIM also has $2.4 billion of debt-free cash on hand plus about $2.5 billion of net value in its manufacturing facilities.""RIM's super-sized patent portfolio""There's a ton of history and there's still value in the CrackBerry brand name."

Then your conclusion is:"Research In Motion is in deep, deep trouble."

So the company is looking good, making money and has a great name, but it's about to implode because it's behind in the (still volatile) smartphone market?

> i've only heard bad things about RIM, did they lay people off or sell assets to get these earnings?

You must take note that the smartphone market is experiencing explosive growth as Android phones are now cheap enough for most people who were buying dumb phones. RIM, however, is getting none of this growth.Hence, the market size is expanding, but RIM's growth is far slower than that of the expansion.As a result while RIM is still growing, its marketshare is shrinking quickly.

Now, why is this a problem? As Apple and Google correctly identified in their smartphone strategy, DEVELOPERS.Developers don't look at growth when considering which platforms to support, they look at marketshare.Frankly, the Blackberry App World is crap and overpriced, and doesn't feature enough to attract users.This forms a negative feedback loop: Declining marketshare leading to less developer support, which further pushes marketshare down.

Hence, that's why the article suggests this is the best time for RIM to sell.On paper (growth stats), everything is great and dandy. In reality, the negative feedback loop above can cause their growth rates to plunge very drastically.

This modern notion of "business" which requires that either a company is number one or two in sales or they're dead and washed up is really idiotic. It's not sports, it's business!

I surely would love to have just one quarter's revenue from this "failed" company...

Anyway, I expect that while the would-be vultures spew silly articles like this one RIM will simply soldier on, continuing to serve those of us who value solid hardware, decent battery life, input hardware which is second to none, and security superior to android or iOS.

And BTW, to suggest Oracle should buy RIM says that either you hate RIM or that you don't know what you're talking about. Oracle has an abysmal track record of mismanaging and killing the businesses they assimilate.

Anders, compelling suggestion. It would get rather interesting for Google if one of their thorns earned a new poison.

As for Blackberry needing to be sold, I'm still not certain I believe this. Corporations looooove Blackberry (at least all the ones I've been in). From business transactions alone, I think they could make enough to continue to survive. The question is: are they willing to be further sidelined into obscurity? If they want to compete head to head against Android, iPhone, and Windows Mobile, they need to severely step up their game. Their approach to primarily working on the body of the phone is nowhere near enough when there is so much competition out there for them. Add additional features to increase the value of their product without inflating the cost.

Revenue and sales are hardly a measure of whether a company is doing well or not, especially in anything related to telecom.

Oracle might want to buy it, but I'm not sure it's the best solution for RIM.

The author rightfully mentions how the co-CEOs have an ego problem and concludes that any attempt at a successful solution for the company would have to start by replacing them. The next step, would not be selling the company, but bringing in a new leader who can better grasp the situation at hand and take the company to a new direction. Do not underestimate the power that can come from a big change in top management.

The cell phone market is volatile enough that companies can afford to make mistakes, as long as their brand is powerful enough to let them try again.

5 years from now, our current tech will be ancient, so you can bet that bringing in new, fresh and talented heads to their leadership and consumer division would significantly change the playing field. As the author mentioned, business and cash don't seem to be problems for them, so a new CEO would only need to attack one or two areas before he sees significant change. That, to me, seems very doable even within a single 3-year business plan.

This modern notion of "business" which requires that either a company is number one or two in sales or they're dead and washed up is really idiotic. It's not sports, it's business!

I surely would love to have just one quarter's revenue from this "failed" company...

Nailed it on the head. Welcome to armchair corporate management. RIM has lost mindshare amongst tech geeks, so now all the geeks think that RIM is doomed and need to make a huge change. And to be bought by Oracle? What? What does Oracle know about building an App store or about being hip (let's face it, the "coolness" factor is one of the most important aspects of the the current smartphone war). Utter nonsense...

Clearly, they are trying to create new products (not very successfully, mind you), but they will continue to release new versions of their stalwart designs to cater to those who like them, and make plenty of money doing so.

This modern notion of "business" which requires that either a company is number one or two in sales or they're dead and washed up is really idiotic. It's not sports, it's business!

I surely would love to have just one quarter's revenue from this "failed" company...

Not all business is this high-stakes - most plod on year after year without the press spotlight washing them in intense glare. Mobile phones stand out because they have a dependency on carriers both for network compatibility and for this horrendous subsidy model that everyone has bought into. They also happen to be very popular consumer electronics at the moment (as opposed to, say, pocket calculators or stereos).

And what raises the stakes are employee headcount, manufacturing contracts, and, unfortunately, patent liability. Those are what make this a 'winner-takes-all' challenge.

Oracle? Even in oracle the apps being developed for mobile devices are for iOS with android by year end. Plus BB's email is based on Exchange isn't it? Why would oracle want to support Exchange? The current race in the enterprise space is to be market leader in cloud, saas, and to be on as many connected devices as possible whatever the brand - more users and more processors.

Google should buy RIM if anyone. Integrate BES into Google Apps for Buisnesses and Android, throw the QNX microkernel into Android, even more patents. Blackberrys also use Java so there is more talent to help out with Android.

"the company is still growing both sales and profits at a more than respectable pace.""RIM also has $2.4 billion of debt-free cash on hand plus about $2.5 billion of net value in its manufacturing facilities.""RIM's super-sized patent portfolio""There's a ton of history and there's still value in the CrackBerry brand name."

Then your conclusion is:"Research In Motion is in deep, deep trouble."

So the company is looking good, making money and has a great name, but it's about to implode because it's behind in the (still volatile) smartphone market?

Yes, RIM is in deep trouble.Playbook is a failure, so they don't really have any new markets that could save them. What about the phone-business? On the surface things seem fine and dandy, but when you scratch the surface, things get murkier. Instead of rehashing it, I'll just point you to read this:

Actually RIM has 2.9 billion in cash.The company is being hammered by DEVELOPERS who in turn want to kill it so they can write for only iOS and Android - this negativity detrimentally affects the retailers and ultimately the demand from the consumer.

In actual fact, the USA is where Blackberry is getting hammered - elsewhere on the planet it is growth. Nevertheless, those who cry out "RIM is doomed" forget that PALM, MOTOROLA and HP are the doomed losers. RIM carries on, and will carry on for some time in spite of what the tech-developers spew.

Incidentally, the power of the developers is way out of whack - only the top 50 apps make any real money for developers - the other 400000+ do not make them much money at all if any. Thus the notion that you need access to so many apps, when the majority of all users really focus only on 50 or so, is a lot of hype and self-promotion from the developers world.

Incidentally, the power of the developers is way out of whack - only the top 50 apps make any real money for developers - the other 400000+ do not make them much money at all if any. Thus the notion that you need access to so many apps, when the majority of all users really focus only on 50 or so, is a lot of hype and self-promotion from the developers world.

i'd be interested in the stats on the top 50 you talk about, got a link?

God I hate BB phones. As someone that had to support them, smart phones like the iPhone were a breeze to configure for Exchange where BB was a crap shoot. There were so many things that could go wrong and did; from the initial PIN to the convoluted mailbox structure on the phone itself.

I know market shares don't change total numbers, but here in Thailand, BB has a very high market share. Many, many kids use them just for the texting benefits. Just guessing numbers by what I see in public, BB to iPhone ratio is probably 4:1 or 5:1. Anecdotal for sure, but you really do see a lot here.

I second Jannes suggestion above, to read mobile opportunity take on this issue. He is anything but an armchair anylast and he could see BB dive from a mile away. BB missed the app phone and getting on the boat 3 years too late.

For those sellout skeptics, look above at tsj5j's comments about the negative feedback loop. Just because the vital signs are ok, doesn't mean that the patient can't have terminal cancer. RIM is dying. If they don't do something drastic, they will end up like Palm, sold well after they lost fans and value. The switch from bbos->qnx is very similar as palmos->webos. RIM could function as a niche for years, yes, but with a small market share the end can come swiftly and unpredictably, which would be worse for everyone involved.

As a vertical business, a split-up isn't trivial, of course, but it isn't a business that could sell in one piece easily - esp given their market cap. So to maximize value, splitting the pieces would attract more buyers and therefore more value. If the business isn't doing well with vertical integration now, I bet it won't do well with new ownership - unless it's an Asian maker with a captive dometic market and huge economies of scale. The pieces I'm guessing would look like QNX, phone patents, phone manufacturing, and messaging software+patents. The co-ceos could keep running the last piece as blackberry (moving the clients to all mobile OSs), spin off/sell the manufacturing as RIM, sell the unrelated patents and QNX in auctions.

Yes. That is exactly what RIM needs. To be bought by a company that will marginalize the phones even further, raise prices, drive off all of the technical talent, and who's support staff fail to comprehend the technology even HALF as well as the customers calling in for help.

"the company is still growing both sales and profits at a more than respectable pace.""RIM also has $2.4 billion of debt-free cash on hand plus about $2.5 billion of net value in its manufacturing facilities.""RIM's super-sized patent portfolio""There's a ton of history and there's still value in the CrackBerry brand name."

Then your conclusion is:"Research In Motion is in deep, deep trouble."

So the company is looking good, making money and has a great name, but it's about to implode because it's behind in the (still volatile) smartphone market?

Their ASPs are dropping precipitously. Its an indication that they are getting crowded out of the premium end of the market, which is likely due to Android/iPhone. As Android's ASPs keep falling, there is a huge fear that RIM will lose out on the low end of the market (which is what is carrying it right now) too.

The day that IBM gets into semi-consumer sales by buying something like RIM is the day flying pigs darken the skies over Cincinnatti.

Might not be that far fetched. I seem to recall the skies there being darkened by falling turkeys once, but then that was due to a poorly thought out Thanksgiving Day promotional stunt by a certain radio station.

The real danger that RIM needs to watch out for is when businesses realize that most people are getting their own smartphones. RIM could keep a boring, but profitable business if companies would keep buying blackberries, however it's becoming increasingly common to allow, or even subsidize buying and iphone or android device instead of the corporate blackberry.

Once this really catches on RIM is doomed unless they can make a phone consumers want.

Look at where Nokia was a year ago, the same place RIM is now. Look at where Nokia is now. Things can change fast in the mobile industry, and nothing seems to point to RIM having a plan to improve market share. Or at least one that works.

God I hate BB phones. As someone that had to support them, smart phones like the iPhone were a breeze to configure for Exchange where BB was a crap shoot. There were so many things that could go wrong and did; from the initial PIN to the convoluted mailbox structure on the phone itself.

I know market shares don't change total numbers, but here in Thailand, BB has a very high market share. Many, many kids use them just for the texting benefits. Just guessing numbers by what I see in public, BB to iPhone ratio is probably 4:1 or 5:1. Anecdotal for sure, but you really do see a lot here.

My experience does not match yours as far as setting them up. I've never had issues with BBs and exchange. Mind you we also run a BES so that sure does help. I've never had issues with iPhones either though.

On the other hand my anecdotal evidence mirrors yours very much. I travelled the world for 3 years building call centres and I sure saw a fuck ton of BBs (business and public). I dont have figures to back this up but I believe the losses are mostly coming from 1. The USA, and 2. within the USA the losses are mostly consumers (which admittedly is a large market). From what I know BBs are popular most other places in the world among the public and businesses LOVE them.

I wonder what's really going to happen in smartphones in the next couple of years. The Steve is one frogm Apple, which suggests to me that Apple is going to continue to make awesome gadgets and sell lots of music, but is unlikely to bring forth another market-defining gadget or service. Rather they're going to iterate and hone to perfection the products and services they have. Without the "wow" every year, where are they? Now that Google is buying Motorola, what's going to happen with the vaunted Android ecosystem? Are the other smartphone vendors really going to continue to thrive? If you compare Motorola's sales alone against RIM, the picture looks a lot less rosy for Android. Same story with Microsoft and Nokia, only writ small. WebOS is gone, Meego is gone. RIM is on the verge of revitalizing their OS with a bit of vitamin Q. The smartphone story is far from it's conclusion and it would be foolish to write an ending (such as has been done in this article) given the enormous flux in the marketplace just in the last two weeks alone.Things can turn around very quickly in this market.

Our company switched from Good Mobile on Palm Treos to TMobile Blackberry Curve 8520's. Good is kept as a compatibility issue for those that want to use their own phones.

For the year that I was with the company with Good Messaging, complaints were few, mostly the aging hardware (We still used Treo 650's up until last year) and cell coverage issues with AT&T.

Now, it's nothing but non-stop griping about the complicated BES setup, emails getting split one way and another (going to BES but not the exchange mailbox, still haven't figured that one out), cheap hardware (I've had almost a dozen broken Curves in a population of 25 over the course of a year) and poor performance.

The funny thing is Good was down to zero users at one point, now it's back up to about 1/3 the total smart phone population.

I realize these are the bargain basement phones, but even so the complication of BES compared to Good Messaging is astounding. And they call themselves Enterprise. Almost need a certified, dedicated person to handle that particular system.

I think Microsoft might actually be the better choice, since BES and Exchange are already tied so closely together.

They are also both very at home in the enterprise market, where security and manageability are more important to the C*Os than widgets, Angry Birds, Facebook, Twitter, or whatever is the newest toy of the week. Then MS could also use the BB network for secure business communications. That's something no one else really has. They could also put WinPhone7 on the RIM devices and a BB client on the WP7 devices.

Then they could still partner up with Nokia, but have something else to bring to the table with them. Access to the BB network, and a back door into the Enterprise market.